'Mercedes and Range Rovers:' Loblaw's discount chains attract higher-income shoppers

More wealthy shoppers are prowling the aisles at discount grocery stores in search of deals amid soaring food inflation, Loblaw Companies Ltd. said Wednesday.

"We're seeing a lot more Mercedes and Range Rovers in the parking lots in those (discount) stores than would have been the case before," chairman and president Galen G. Weston told analysts during a conference call to discuss the grocer's latest results. 

"The discount formats are successfully converting higher-income customers."

His comments came as Loblaw reported its third-quarter profits rose about 30 per cent compared with a year ago.

The grocery and drugstore retailer said its net earnings available to common shareholders totalled $556 million for the quarter ended Oct. 8, up from $431 million in the same quarter last year, while revenue climbed to $17.39 billion in the quarter, up from $16.05 billion in its third quarter of 2021.

Food retail same-store sales rose 6.9 per cent, led by the grocer's discount banners, including No Frills and Real Canadian Superstore. 

"Performance in our discount banners continued to strengthen as market share and traffic improved year over year," Loblaw chief financial officer Richard Dufresne told analysts. 

"We continue to see a larger share of wallet spend in our discount banners."

The grocer also noted a continued shift to private-label brands like President’s Choice and No Name.

Loblaw has recorded "an enormous amount of new trial" of customers buying its No Name brand, Weston said. 

"I don't know what it was like in the 1980s but certainly in my time in the business I haven't seen this kind of growth in an opening-price-point brand ever," he said. "It's pretty significant."

One of the key drivers of No Name sales is the brand's broad assortment, including in the produce aisle where inflation has been acute, Weston said. 

Meanwhile, the President's Choice brand is also growing, though not at the same rate as No Name, he said.

In September, the price of food purchased in stores rose 11.4 per cent compared with a year earlier, the fastest pace since 1981, Statistics Canada said. 

The agency said Wednesday the price of food from stores in October was up 11.0 per cent compared with a year earlier, a somewhat slower clip than the previous month, but still the eleventh consecutive month where groceries increased at a faster rate year over year than the overall consumer price index.

Loblaw said Canadian retail food inflation remained among the lowest of G7 countries but that "global inflationary forces continued to increase the cost of food in the quarter" and that it continues to field new cost increases from suppliers. 

"We are largely dependent on what suppliers ask us to pay for their products," Dufresne said. "Suppliers determine the cost and we determine the retail prices."

Dufresne added: "Our objective is to make sure that our price on the shelf does not rise faster than supplier costs."

Loblaw tracks its margins closely, he said, and every quarter since inflation took off last summer the company's food gross margins have been essentially flat. 

"This gives us the confidence to say categorically that retail prices are not growing faster than costs and the company is not taking advantage of inflation to drive profit," Dufresne said. 

On an adjusted basis, Loblaw says it earned $2.01 per diluted share, up from an adjusted profit of $1.59 per diluted share a year ago. 

Analysts on average had expected a profit of $1.96 per share and $16.85 billion in revenue, according to estimates compiled by financial markets data firm Refinitiv.

This report by The Canadian Press was first published Nov. 16, 2022.

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Brett Bundale, The Canadian Press